In reviewing the various ACA replacement proposals, there’s one suggestion that keeps popping up again and again: allowing carriers to sell health insurance across state lines. President-elect Donald Trump, Speaker of the House Paul Ryan, and HHS Secretary Nominee Tom Price all support this idea, as do Ted Cruz, Orrin Hatch, and other prominent Republicans who have also introduced their own health care bills.
Supporters of the Affordable Care Act, though, are quick to point out that this recommendation will do little, if anything, to bring down costs or reduce the number of uninsured. Their argument is that almost all health insurance plans work with provider networks that may not be available in all states, which makes it difficult, if not impossible to expand to areas where they don’t have a network providers, whether selling across state lines is legal or not. In fact, many markets have a single dominant carrier with large market share, because it has the best provider discounts. Since the rates carriers charge are directly related to the contracts they have with network doctors and hospitals, it’s difficult for vendors to enter a new market.
As Senator Al Franken (D–MN) pointed out in a recent interview on MSNBC, people in Arkansas aren’t going to buy a plan from an insurer in Idaho that doesn’t contract with local providers. That’s the reason why, even though selling insurance across state lines is already legal in a number of states, no carriers have stepped up to offer these plans.
But is there more to it? If this is such an easily-defeated idea, why are so many lawmakers excited about the possibilities? We believe these are some of the reasons:
Under the Affordable Care Act, the “essential benefits” are similar from state to state, though they do vary depending on what benchmark plan the state selected. But if the ACA is repealed, then the mandated benefits in each state will play a bigger role in determining the monthly premiums. For instance, some states mandate that treatment for autism be covered on all plans; others do not. Some states require in-vitro fertilization to be offered as a benefit; others do not. While state mandates do make the plans more attractive for people who need the mandated services, they cause everyone who doesn’t need them to pay more for their coverage. Those frustrated with having to pay for services they’ll never use, might prefer to purchase coverage in a state that doesn’t mandate those benefits.
Since 2014, ACA qualified plans in the individual and small-group markets are all playing by the same “modified adjusted community rating” rules. These rules say that insurance companies cannot vary their rates by more than a 3 to 1 ratio for people age 21 and older. They also say that insurers cannot consider industry or group size when pricing small-group plans and they cannot discriminate based on gender or medical conditions. In the past, insurance companies have considered all of these individual and group characteristics to be “risk factors” that warranted a different price for similar coverage.
If the modified adjusted community rating rules are rolled back, we’ll see more variation in premiums from state to state. For instance, several Republican proposals would increase the age bands from 3:1 to 5:1, allowing insurers to charge significantly more for older individuals and older workers. States, however, would have the option of leaving the age bands where they are currently. To the extent that different states adopt different rules, some areas may be more attractive than others depending on a person’s age.
Another example is the amount carriers are allowed to “rate up” a small-group based on medical conditions, assuming of course that this rating option is restored by the replacement plan. Prior to the ACA, some states only allowed a 10% rate differential between the healthiest and sickest groups while others permitted rate ups of 67% or more. Underwriting rules will definitely be a factor if groups can purchase coverage in other states.
A third reason the ability to purchase insurance across state lines may become attractive is that most of the replacement proposals restore power to the states and encourage them to come up with innovative solutions to expand coverage and reduce prices. We don’t yet know what sort of solutions might emerge from these efforts, but if a state figures out the “secret sauce” to reduce insurance premiums, it’ll certainly attract attention from individuals and employers across the country.
Again, we can’t be certain what the future holds. Some question whether Republicans will be able to repeal the ACA without Democratic support. Others believe Senate Democrats will use the filibuster to block any extreme replacement plans. And how the final proposals will treat mandated benefits and underwriting rules is still a bit of a wild card.
One certainty if so many lawmakers believe selling insurance across state lines will help increase competition and choice and reduce premiums and out of pockets—surely they’ll find a way to make it work. Perhaps large national carriers will be the first to embrace this strategy or maybe we’ll see nationwide networks emerge that smaller carriers can incorporate into their plans. We could even witness a resurgence of the old indemnity plans that allow members to visit any provider they choose. As we learn more about this proposal and other replacement provisions, we’ll be sure to pass it on. And if the proposal starts to get some legs, and you need to get appointed in other states, AHCP will help with that as well. Stay tuned.